Prior studies on Ijarah were mainly focusing on the economics, legal and financial aspects, there was, however, so far no in-depth study on accounting for Ijarah. The main objective of this study is to explore the nature of accounting for Ijarah financial instruments as practiced by Malaysian financial institutions. First, the study makes a comparison between the International Accounting Standard on leasing (IAS 17); the accounting standard for Ijarah (FAS 8) as developed by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI); and the Malaysian Accounting Standard on leasing (MASB 10). The study found that there are major differences as to the nature of leasing and Ijarah, and as a result accounting principles that have driven all the three standards as well as accounting techniques developed for leasing and Ijarah are significantly different. Secondly, the study examines the level of acceptability of the AAOIFI’s FAS 8 among the Malaysian financial institutions. The result of the questionnaire survey shows a low level of acceptability of FAS 8 and thus, it indicates that, first, the effort to harmonise the accounting practices on Islamic financing practices by financial institutions internationally may be a difficult task. Secondly, until and unless the AAOIFI standard is adopted by the regulatory agency as in the case of Malaysia, Bank Negara Malaysia, AAOIFI standards will remain only as a reference but do not have the legal authority. Consequently, the quality and comparability of accounting information of Islamic financing such as Ijarah will be seriously at a stake. Introduction Ijarah has been conceptually understood as a contract of exchange where one party enjoys the benefit arising from employment by another party in return for a consideration for the services rendered and from the use of an asset. Scholars of the four schools of Islamic jurisprudence (Shafi’ie, Maliki, Hanbali and Hanafi) have cited various definitions of the contract of Ijarah. In brief, these definitions agree on the fact that the contract of Ijarah is a contract on using the benefits or services in return for compensation (Kharofa, 1997). There is a considerable body of research on the Islamic financial system in general. However, literature that specifically discusses the Ijarah contract is limited. The study is motivated to explore accounting issues in Ijarah due to the lack of studies on Ijarah. The scarce availability of literature written on the topic of Ijarah is due to several possible reasons. The most fundamental reason is the infancy stage of Islamic banking and finance as compared to conventional finance. The idea of Islamic finance was inspired by the first conference on Islamic economics in 1976. Obviously, Ijarah, which is part of Islamic finance, is very much in its early stages of development. The first objective of this study is to examine the nature of Ijarah financing and its differences with conventional lease financing from the legal and accounting perspectives.

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International Journal of Islamic Financial Services, Vol. 5, No. 3

This is considered as important because without a proper understanding on the nature of Ijarah and the differences compared to conventional leasing, the conceptualization of the accounting implications for Ijarah may not be complete. Consequently, the second objective of this study is to determine the level of acceptability of Accounting and Auditing Organization of Islamic Financial Institution’s (AAOIFI) accounting standard on Ijarah in Malaysia using questionnaire and interview survey among Malaysian’s commercial banks. This is important to explore the current practices in...

...SCIENCES
TOPIC:
IJARAH
Done by:
Muhammad Hibatul Hakimi b Haji Suhaili (10B0911)
Contents
Introduction 1
Basis of Ijarah 2
Essential elements of ijarah contract 2
Modus Operandi 3
3 Selected Banks 4
Conclusion 6
Bibliography 6
Introduction
An Islamic alternative to conventional leasing is ijarah. Ijarah is a derivative of the Arabic words ‘ajr’ and ujrah which means consideration, return, wages, or rent. Generally, Ijarah means to give something on a rental basis or wages.According to muslim scholars such as hanafi, maliki and shafiee.
Definitions of ijarah according to Hanafi, it is a contract which enables possession of a particular intended usufruct of the leased asset for a consideration.
Definitions of ijarah according to shafiee, it is a contract which relates to permissible usufruct liable to utilization and accessibility for a particular recompense
Definitions of ijarah according to Hambali, it is a contract for a particular permissible usufruct which is taken gradually for a particular period and a particular consideration.
The practice of Ijarah takes place in a contract between two parties which is the lessor and lessee where the lessee gets the benefits of a specific service or specific asset owned by the lessor on specified consideration or rent. In al-ijarah services, the...

...IjarahIjarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price.
Advantages Of Ijarah
The following are the advantages of Ijarah to lessee:
1)Ijarah conserves capital as it may provide 100% financing.
2)Ijarah enables the Lessee to have the use of the equipment on payment of the first rental. This is important since it is the use (and not ownership)of the equipment that generates income.
3)Ijarah arrangements are flexible because the terms and rental provision may be tailored to suit the needs of the Lessee. Therefore, it aids corporate planning and budgeting.
4)Ijarah is not borrowing and is therefore not required to be disclosed as a liability in the Balance Sheet of the Lessee. Being an “off balance sheet” financing, it is not included in the computation of gearing ratios imposed by bankers. The borrowing capacity of the Lessee is therefore not impaired when leasing is resorted to as a mean of financing.
5)All payments of rentals are treated as payment of operating expenses and are therefore, fully tax-deductible. Leasing therefore offers tax-advantages to profit making concerns.
6)There are...

...Evaluation on Al-Ijarah Thumma Al-Bay’ (AITAB) Facility:
The Case of Affin Islamic Bank Berhad
Aisyah Abdul Rahman, PhD.
eychah@ukm.my
Rahazilah Binti Rahman
School of Business, Faculty of Economy and Management,
Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia.
Abstract
Al-Ijarah Thumma Al-Bay‟ (AITAB) is the contemporary innovative product that
specifically designed for Islamic hire-purchase facility with compliance of Shariah principle.
Even though AITAB facility was established more than ten years ago in Islamic banking,
there is no Islamic hire-purchase act to regulate this product. As a consequent, there is still a
question of whether the operations of AITAB fully abide with Shariah principle as Albert
Einstein had stated that "In theory, theory and practice are the same. However, in practice,
they are not." Therefore, the objective of this research is to identify if there are differences
between the theory of AITAB facility based on Shariah principle and the real operation
practiced by the Affin Islamic Bank Bhd. Also, we seek to identify the similarities (if any)
between AITAB and conventional hire-purchase (based on Hire-Purchase Act 1967) in order
to investigate whether the similarities in practice have been influenced by the same
regulation. This study adopts the research methodology of qualitative approach and content
analysis. The explanations given by the Affin Islamic bank‟s manager regarding the issues
and...

...SUKUK AL-IJARAH AS ALTERNATIVE FOR PROPERTY DEVELOPMENT FINANCING
OVERVIEW IN MALAYSIA MARKET
By
Razlan Bin Raghazli
1200248
International Centre for Education in Islamic Finance
Malaysia
July 08, 2012
June – August 2012
Sukuk Al-Ijarah as an Alternative for Project Financing
Overview of Malaysian Property Development
Razlan Raghazli
June 2010
1.0 Introduction
Nowadays, the funding from Islamic Finance Product is highly demanded not only from the consumer market, but also from the corporate organisation and public sector. According to the Bank Negara Malaysia Annual Banking Statistics 2007 (Malaysia, 2007), the Islamic Banking Assets in Malaysia reached USD6.5 billion with the average growth rate between 18% to 20% annually.
Islamic Finance comprises of several products such as Mudharabah, Murabahah, Bai Al-Istina, and sukuk (Saad, Ramli, &amp; Aminuddin, 2011). These products were selected based on the suitability to finance the underlying assets and to be structured according to the financier and obligator’s requirements.
Figure 1 : Common structure of sukuk al-jarah
Source : Malaysia International Islamic Financial Centre
2.0 Literature Review
Sukuk are defined by the Accounting and Auditing Organisation for Islamic Financial Institution (AAOIFI) as certificates in ownership in a pool of underlying assets. Sukuk Al-Ijarah are certificates that...

...Islamic Economic Studies Vol. 4, No. 2, May 1997
THE USE OF ASSETS IJARA BONDS FOR BRIDGING THE BUDGET GAP
MONZER KAHF*
A shari‘ah compatible fixed-return financial instrument is needed in an Islamic economy. This paper explores the potential of ijara (renting)-based financial instruments to meet this need. The paper proposes ijara-bonds as marketable Islamic financial instruments for resource mobilization in the public sector as well as an instrument for monetary policy. Private companies can equally use the ijarabonds for resource mobilization. This paper aims at presenting the idea of assets ijara bonds (AIBs)1 and how such bonds can be used by governments as an alternative means of borrowing funds from the public. The paper consists of four sections. Section one deals with the assumptions under which the AIBs shall be discussed. Section two will analyze the ijara contract and discuss the shari‘ah foundation of the AIBs. The third section defines AIBs and studies their different forms. Finally, section four will discuss the characteristics and economics of AIBs and compare them with other securities. 1. ASSUMPTIONS In order to restrict the discussion in this paper to the limits that serve the stated objectives, we have to make a few necessary assumptions: 1. We assume existence of a deficit in the budget, but without discussing its causes or nature. A deficit may be attributed to shortage of financial
Research Economist, Islamic Research and Training Institute,...